How Open Finance Helps Unbanked Population in Indonesia

During the last five years, Indonesia has become one of the fastest-growing digital economies in the world. Digital goods and services involve approximately 80% of Indonesians in their new shopping habits. Unfortunately. 40% of e-commerce transactions are still paid by cash or traditional bank transfer. In other words, the infrastructure for digital transactions has failed to meet its needs. However, as the digital financial world grows, open banking has become the best offer for the unbanked Indonesian population to keep pace with the financial world's revolution.

Over 100 million Indonesians remain unbanked

If you are wondering if there is a person that remains million unbanked in this all-digital era, then you might not know what's going on in Indonesia in 2022. Over 100 million adults in Indonesia utilize fintech services ranging from digital wallets to peer-to-peer (P2P) lending instead of loans and credit cards to fulfill their financial needs.

Digital payment has quite a similar story. Even though there has been significant growth in digital transactions during Covid-19 pandemic, in 2020 and 2021, about 40% of Indonesians' prefer to make transactions by cash or bank transfer. Indonesia facing inclusion problems due to people's reluctance to inter-bank payments because of the charging fee for inter-bank transactions in banks in Indonesia. Some people use a local switching company to avoid the charge, creating inefficiencies in payment transactions.

The good news is that the industry's growth is well-documented, with over 360 registered fintech companies in Indonesia building various partnerships over different platforms to keep digital banking growing. Yet, the financial amount of data of their customer are stored poorly. While digital financial services or fintech companies lack the necessary information to offer loans, consumers cannot find the right financial products to help their financial well-being in the banking industry.

Open finance can solve this issue

Open finance bridges the gap between companies and consumers for their financial transactions. It allows companies and consumers to leverage their data and conclude an understandable picture of an individual’s financial footprint. For instance, a company can get a better picture of what finance product a customer needs based on their transactional history to provide better financial solutions, products, and services through digital transformation.

The data of alternative financial platforms such as P2P lenders also allows companies to authenticate the identity of the unbanked. It will create broader access to financial services only available for banked users.

Open finance allows data exchange among companies and consumers. By opening their customer data, fintech and financial institutions can understand their customers better and increase access to financial services for the unbanked Indonesian population, even those who live in Jakarta.

It opens financial services to all

Open finance allows access to Indonesian financial services, including Indonesia's unbanked population, and helps remove financial inclusion in Indonesia's financial service industry. A small business owner, such as a street food stall, may not have a bank account or even formal financial service. It makes them unreachable for loans or credit cards since the bank doesn’t have sufficient information to conduct a background check to provide the best financial technology for cities across Indonesia.

However, the owner may use a digital wallet app for their business to receive payment from their online customers or shop for business needs that require them to open a bank account to transfer money from their digital wallet. The bank can use the alternative data from their digital wallet app to conduct background checks. It will be possible for the business owner to propose a loan for their business’s capital which they may have never imagined before.

It creates a mutually beneficial relationship between companies and customers

Mutual benefit between companies and consumers is unavoidable. The former will efficiently conduct background checks while providing the best financial product to support the latter business. The unbanked population can also reach loans and credit cards that they may never see before the emergence of open finance.

Open finance is a breakthrough of the financial revolution. It creates a bridge to accommodate the company to the customers effectively. This will result in better well-being since the bridge helps companies to know their consumers better, and the consumers will gain better access to various financial products.

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